The 50% CGT discount on shares: Here’s how it works, and if it is under threat

The 50% CGT discount on shares is one of the key mechanisms that helps investors keep as much of their cash as they have earned on their investments. We felt that it was time to write a stand-alone article about this in light of the inflation crisis and how it could lead to investors seeking more money, and how it could lead to a curtailment of this scheme.

An earlier version of this article was written in February and was in an environment where it seemed only existing property would be subject to a regime change. But now, 2 weeks from the budget, it appears changes will apply to all assets (including shares) and it will be a return to the pre-1999 system of indexation. Ironically, shares were the asset class that led to a change to a percentage discount as the advent of online share trading made regulators think the then status quo was too complicated. Not anymore it seems.

This article recaps how it works now and what could happen on Budget night along with what it’d mean for investors.

Note: This article was first published in early February 2026, last updated April 28 2026.

A recap of the CGT discount on shares and how it works

Mechanically, the 50% CGT discount applies when an individual (or trust) sells an asset such as shares that has been held for more than 12 months. Instead of taxing the full nominal capital gain, only half of the gain is included in your assessable income and taxed at your marginal tax rate. So if you realise a $20,000 gain, only $10,000 is added to your taxable income. Superannuation funds get a one-third discount (effectively 10% tax if in accumulation), and companies get no discount at all.

Before we go further, let us demonstrate how it works so you can see where the discount actually bites.

Say you bought 1,000 shares in an ASX-listed company at $10 each in July 2022, costing $10,000 all up, not counting $100 brokerage. Then, in August 2024, more than 12 months later, you sold all 1,000 shares at $18 each. Your sale proceeds are $18,000. You also pay $100 in brokerage on the sale, which reduces your proceeds for CGT purposes, so your net proceeds are $17,900.

Your capital gain is calculated as:
$17,900 (net proceeds) minus $10,100 (cost base) = $7,800 capital gain.

Because you held the shares for longer than 12 months and you’re an individual taxpayer, you are entitled to the 50% CGT discount. That discount does not reduce the tax rate — it reduces the amount of the gain that gets taxed.

So you discount the gain:
$7,800 × 50% = $3,900.

That $3,900 is the amount that gets added to your taxable income for the year.

Now let’s put that into an actual tax context. Suppose your other income (salary, etc.) for the year is $96,100. Adding the discounted capital gain brings your taxable income to $100,000. The $3,900 is taxed at your marginal tax rate, not at a special CGT rate.

If your marginal tax rate is 37% (ignoring Medicare for simplicity), the tax on the capital gain is:
$3,900 × 37% = $1,443.

So even though the economic gain was $7,800, the actual tax you pay is $1,443. That works out to an effective tax rate on the capital gain of about 18.5%, which is exactly half your marginal rate — that’s the practical effect of the 50% discount.

For contrast, if you had sold the shares within 12 months, the discount would not apply. The full $7,800 would be added to your taxable income. At the same marginal rate, the tax would be:
$7,800 × 37% = $2,886.

Its the same trade, same gain, same income, just a different holding period, and the tax outcome is dramatically different.

That’s why the CGT discount matters so much in real life: it doesn’t just reduce tax (although of course it does), it strongly incentivises investors to hold assets for longer than 12 months and shapes behaviour across the whole market.

But could it be under threat? It appears so!

With the RBA’s dramatic U-turn on rates, and the Albanese government’s spending being blamed and pressured to reign in spending and/or provide working people with further income tax relief, there has been talk that the CGT discount could be curtailed – either just for properties or for all asset classes. It could be a standalone measure, or perhaps part of a broader tax reform package. As of the time this article was written (on April 28, 2026) it appears that we will return to the pre-1999 system of indexation and it will apply to almost all asset classes including equities.

Let’s take a history lesson here. Before 1999, Australia used a different system. Capital gains were taxed in full, but the cost base of the asset was indexed to inflation using CPI. That meant you were only taxed on real gains, not inflationary ones.

In theory, that’s economically cleaner. In practice, it became messy. Every parcel of shares needed CPI adjustments based on acquisition date, partial disposals were painful to calculate, and the rise of online share trading and high transaction volumes in the 1990s made compliance increasingly complex for both taxpayers and the ATO.

The Howard government’s 1999 reform scrapped indexation for assets acquired after September 20, 1999 and replaced it with the flat 50% discount. The motivation wasn’t just simplification, though that was a big part of it. The discount also deliberately favoured long-term investment, reduced lock-in effects, and in many cases went further than indexation by taxing less than real gains during periods of low inflation. That generosity is why the discount has remained politically controversial ever since.

Now, on the question of changing or abolishing it, which comes up regularly in policy debates. The impact on investors would depend heavily on how it’s changed. Would it be a reduced discount or back to the pre-1999 system?

What would be the impact if the discount was reduced for shares?

If the discount were reduced at all (whether to a lower fixed percentage or to the indexation method), after-tax returns on long-term investments would fall, especially for high-income investors. That would likely push some investors toward holding assets longer to defer tax, shift portfolios toward superannuation where CGT treatment is softer, or favour income-producing assets over growth assets. You’d also expect downward pressure on asset prices at the margin, because buyers would demand higher pre-tax returns to compensate for higher future tax.

If the discount was replaced with indexation, the effects would be stronger than a mere cutting of the fixed percentage. Effective tax rates on equity investment would rise sharply, particularly during low-inflation periods where indexation would have made little difference. That would disproportionately affect growth assets like shares and property, increase lock-in behaviour (people holding assets just to avoid triggering tax), and likely reduce market liquidity.

This would be fairer in an economic sense but more complex administratively, especially again in a world of frequent trading and fractional share ownership. Then again, technology has come a long way since 1999 and you could argue that it wouldn’t be as complex as it would’ve been in 1999.

What if the discount was only cut for housing but retained for shares

If the CGT discount were reduced or removed for housing but kept at 50% for shares, you may think it won’t affect equity markets at all. But it would by making shares more attractive.

For investors, property’s appeal already relies heavily on two things: leverage and preferential tax treatment (CGT discount plus negative gearing). If you reduce the CGT discount on housing — say from 50% to 25%, or abolish it entirely — the expected after-tax payoff at sale drops materially, especially for high-income investors who rely on capital growth rather than rental yield. That would make marginal property investments less attractive, particularly in markets where price growth expectations are already stretched.

By contrast, shares retaining the 50% discount would look relatively more attractive on a risk-adjusted, after-tax basis. For investors choosing where to allocate new capital, equities would benefit at the margin. You might see more wealth flow into listed markets, ETFs, and superannuation contributions, rather than leveraged property. Importantly, this wouldn’t require investors to become “anti-property” — it just nudges portfolio construction toward assets with better tax efficiency.

Politically and administratively, this approach is also more feasible than a universal CGT change. Property is immobile, easier to classify, and more visibly linked to affordability concerns. Shares are already highly mobile and sensitive to tax changes, so governments tend to be cautious about touching their CGT treatment. The main design challenge would be defining which housing assets are affected — investment property versus principal place of residence (which is already CGT-exempt), build-to-rent, trusts, and so on.

Conclusion

The key point is that the current discount doesn’t just reduce tax — it shapes investor behaviour. And the parliamentary inquiry into CGT, that published its findings in March, found just this – it distorts decision making into the most tax-effective assets. Thus, it encourages long holding periods, favours low-tax growth over any other factor (whether productivity, income or growth without any consideration of future tax liabilities), and tilts investment toward assets with capital appreciation. We’d expect any meaningful change would ripple through asset prices, portfolio construction, and even housing and equity market dynamics, not just individual tax bills.

In an ideal world, it’d only be changed for housing but kept for other asset classes including shares. Such a move would tilt incentives away from leveraged property speculation and toward financial assets, cool investor demand over time, and likely slow house price growth at the margin — without blowing up equity markets or punishing long-term share investors. It’d be a scalpel rather than a sledgehammer which a reduction in CGT for all assets would.

But of course, if even shares were touched and we returned to an indexation method…investors should brace themselves for the impact.